junior oilers 18/19 january

Junior oilers 18/19 january

An interesting week for the junior oilers with attention focussing on the Cliff Head drilling, on the potential resurrection of Kalrez, and, towards the end of the week, on Amity Oil due to drilling activity in Turkey. Horizon too came to life on Wednesday as Chott Fejaz neared its target, Bosavi was close to spudding and the company announced a farm in to another NZ well. Other stocks which seem to be on the move and ended up for the week included FAR, PSA, CVN, PPP (Tui) and WON (see below). They may be worth watching next week. Prices in the most heavily traded stocks were volatile during the week providing plenty of opportunities for daytraders and they appeared to out in big numbers.

Cliff Head

Monday’s results of Cliff Head 3 failed to excite the market. Apparently a 48 metre oil column with 40% interpreted as net oil pay from a moderate to good reservoir did not meet expectations. Shares in the jv partners rose after the result came out then drifted for the rest of the week, all stocks ending Friday down on Monday’s close.

This reaction was a further reminder, if one was needed, of the how fickle the oil exploration business can be or perhaps more accurately, how fickle the market can be in reaction to drilling results even good ones. It was also a reminder that one should be very wary of the pre drill hype that often accompanies the spudding of a well or wells.

The operator (ROC) is still to pronounce on whether the Cliff Head field is commercial or not and this won’t happen until after the sidetrack is drilled and production tested . We can expect these results early next week. With all the info about Cliff Head currently available and the market already assuming it is a commercial discovery of some 40 mmbo, in my opinion it would take a spectacular production test result next week to move the jv shares significantly. And this seems unlikely.

Cliff Head 3 will be plugged and abandoned regardless of the result, and given that the field is offshore, commercial production, if the field is developed, is at least a year or more away. Moreover stocks like NWE will have to raise capital to fund their share of the development. This sort of news does not find favour with the market. But don’t get me wrong, if Cliff Head is declared a commercial discovery, all the jv partners will benefit in the long run, perhaps just not immediately. A discovery at Twin Lions however would significantly change this assessment.

A decision to drill a second sidetrack well at Cliff Head depends on the results of the first two holes. The Twin Lions spud date awaits the decision on the second ST but it is beginning to look like it won’t spud much before Wednesday. The CH drilling has taking longer than expected.

Noticed that some posts on bulletin boards have suggested that BUY is a better leverage play in the current Perth Basin drilling round than NWE given it has fewer shares on issue, revenue gauranteed from Woodada gas and interests in the leases immediately north of TP/15 and WA-286. It is also linked via mangement to Hardman Resources (though some see this as a possible overhang in the market for BUY shares). BUY’s Leafcutter well in the onshore Perth Basin also looks like it could attract interest in the stock in the expectation it might prove another Hovea or Jingemia.

But so far the volume of both stocks traded clearly favours NWE (29 million) over BUY (2.6 million). I don’t know if this will continue in the lead up to Twin Lions but a change in sentiment is something to look out for

The other thing to watch is the number of wells that seem to be all coming together at the one time including potentially big ones like Chott Fejaz, Bosavi and Tui. The latter two should spud before the end of January. So in addition to NWE and BUY (and of course VOY, AWE, ROC and HDR) add PPP, NZO and HZN to your list of stocks to watch. Also West Koriot 1 (VPE and LKO) will report early in the week. This well was spudded last Thursday and was expected to take six days to drill.

Other action this week

Kalrez

The announcement we anticipated last week on funding was very nearly the first press release on the ASX website on Monday morning. The market liked what it saw and 155 million shares changed hands during the day pushing the price up from 0.009 cents to 0.012 cents at one point. Then sure as night follows day, daytraders caught at the top exited at what they could get for their shares in the afternoon and the price retraced to 0.010 cents. They dropped further on subsequent days ending the week at 0.008 cents. Feeding frenzies like that of Monday morning usually see the price peak within the first hour but on this occasion the momentum kept going almost until midday. Sure was a sight to see. Some 286 million shares or about 25% of total shares on issue were churned during the week, 156 million on Monday alone.

In its funding announcement KRZ told us that their shares had blown out to 1.2 billion and their debt or debt facility was $1.75 million. But apparently this was the only way to stay viable and the interim Chairman was very positive about the financing package and the lifeline it threw the company. I say interim because at the end of the week Kalrez announced the appointment of a new chairman, the resignation of Smith (though he will stay on as a director), the resignation of Doug Jendry as a director and confirmed the move of the office to Adelaide. This game of executive musical chairs did not seem to worry the market.

So where to now?

If oil prices stay around $US30 KRZ should expect $A7 million a year in revenues after freight and royalties from Bula at current production levels of around 500 bopd. If Oseil phase 1 production can get up to 20,000 bopd (currently 7,000 and climbing) that’s another 550 bopd for KRZ which given the different price Oseil attracts and higher production costs could be worth conservatively say $A4 million a year. Throw in a million for the rig and zilch for the gas plant and revenues net of royalties come to around $A12 million or around one cent a share. So the stock is undervalued at current prices and if you allow a P/E of three or four then it is very undervalued.

KRZ now has to perform and indications so far suggest they will. I sense that the new managers want very badly to show up the old. And most of the new managers have big stakes in the stock.

One poster on this thread last week (ROSCO_P) who had been to Seram Island told us that the Bula fields had produced oil for yonx and its small reservoirs seemed to be recharged from some mega reservoir that nobody could find, a sort of oil man’s Lasseter’s Reef. KRZ told me this week that they didn’t really know where the oil came from. They also confirmed that if they could find a jv partner willing to put up the funds they would probably drill some prospects on the Oseil field this year with Kufpec’s agreement. Whatever happens expect the news releases to come out fairly regularly which should keep up interest in the stock. Definite releases include weekly Oseil production reports. Possible releases include the results of recent Bula drilling, the payment of all Australian creditors and payment of cash calls to Kufpec due by end of January.

The trading action late in the week seemed to suggest that 0.008 cents has been established as a base. Remember this is a highly speculative stock which is not out of the woods yet.

West Oil

Continuing with a look at supposed penny dreadfuls, WON is of interest at the moment with two wells coming up in March and what looks like a successful farm out of Puffin. The shares closed on Friday at 0.013 cents as against a close of 0.011 cents the previous Friday. WON had a pre Christmas two for three share issue at one cent. This has taken the total number of shares on issue to some 340 million valuing the company at around $4 million. It seems reasonable to expect some price appreciation ahead of the March drilling though the new shares might put a cap on the extent of that appreciation in the short term. Nevertheless volumes and price picked up a little this week.

West Oil gets ten out of ten for effort. It has tried hard to graduate from only an explorer to explorer and producer without success. The Puffin oil field in the Timor Sea (AC/P 22) was to be the company maker for WON and its partner NWE. Drilling in years gone by had proven the presence of oil and WON/NWE expected to prove up the field with an appraisal well, Puffin 6, after finding oil in Puffin 5. In anticipation of success at Puffin the market had WON’s shares at between 15 and 25 cents for much of the year 2000. But Puffin 6 hit the Puffin 5 reservoir below the oil water contact. WON’s share nosedived and have never really recovered.

Experts describe the Puffin Horst Block as divided into a number of discrete fields making it very complex geologically. When WON’s original US partner pulled out of the lease WON and NWE looked for new partners and found them in Century Exploration and Concordia Resources, two related US companies. The arrangement with them is important so here it is. Century and Concordia have agreed to undertake Pre Stack Depth Migration (PSDM) processing on 150 sq km of 3D seismic over the Puffin Horst to earn an option to drill a well in the permit. If Century and Concordia exercise the option they will earn an 80% interest in AC/P22 by drilling and if warranted testing and suspending one well. NWE and WON will each retain 10% interest in the lease and be free carried through any well. The Americans have six months to analyse the seismic from the date a formal farm out agreement is signed. As long as Puffin is still alive there will be interest in WON and NWE.

But it is not Puffin which is likely to influence WON’s share price action in the short term. After a quiet 2001 and a disappointing drilling program in 2002 which included a number of dusters (eg, Carlston 1 and Sleeper) WON went back to shareholders a couple of times for more money and is about to drill two wells, one South Crackling (WON 22%) in the offshore Carnarvon Basin targeting 20 mbo in the Birdrong Sandstone. The other is the delayed drilling of Altostratus 1 (WON 10%), targeting 48 mbo, and also in the Carnarvon basin. Both wells are likely to be drilled in March but this depends on the prior drilling commitments of the rig engaged for the wells.

WON has more than Puffin and these two wells to look forward to. It has quite an extensive portfolio of assets particularly but not exclusively in the Bonaparte and Carnarvon Basins and is working hard on farm outs. Anyone interested in the stock would be well advised to read WON’s second quarter activities report due out shortly or go to the website. WON has the capacity to spring surprises as it did when it announced in December that it had signed a farm out agreement with Chinese Petroleum Corporation of Taiwan which will see WON free carried by CPC in one exploration well in AC/P 32 in the Timor Sea to be drilled by feb 2004. One should never underestimate the ability of CEO Charles Morgan to do deals.
I bought in to WON this week conscious that this is a high risk stock going for targets with potential high rewards.

Petsec Energy

PSA said this week that its production facilities at West Cameron were on schedule to be completed in January. The three wells would be brought into production one at a time and from one sand at a time in each well,starting from the bottom up. Looks like the wells won’t be fully commissioned until February or March. But if all goes according to plan PSA should soon be in receipt of good monthly revenues including a cheque from Llog for its interest in Ship Shoal. Seems to have been some anticipation of this in the market recently with the stock hitting 28 cents on Thursday up from 25 cents a fortnight ago. Volumes however remain small. PSA is my preferred gas play over AYO though the market strongly supported AYO this week when it announced the imminent spudding of two development wells on the Gocerler Field in Turkey. AYO shot up 8 cents to 73 cents on Thursday and a further 3 cents of Friday on strong volume. Just goes to show what a difference drilling activity can do for a stock and in AYO’s case, a proactive public relations effort. If PSA took a leaf out of Tony Barton’s book its share price would be a lot higher.

Horizon Oil

Horizon came to life this week climbing 2 cents on Thursday on good volume of nearly 3 million shares. This followed a press release updating activity on three fronts. In Tunisia HZN’s Chott Fejaz well was poised to intersect the target reservoir. In New Zealand the Maari 2 an appraisal well in PEP 38413, a recent HZN farm in, had intersected the M2A sand found to be oil producing in earlier wells and found to be thicker at this location (10 metres as against 5 metres). The well was currently cutting a core in the target Moki reservoir. And in PNG the rig to drill Bosavi was 85% rigged up and should commence drilling this coming week.

HZN paid $US1.5 million to farm into Maari 2 which must have put further pressure on its bank balance. I still think it is possible that HZN will sell its Bayou Choctaw assets and concentrate on China and NZ as core areas of activity. If this happens we might get some drilling activity this year in Louisiana which would be good news for Icon and potentially FAR.

In PNG I had expected an announcement last week that Oil Search had farmed in to Bosavi and that HZN, as part of the deal, had got an interest in a second OSH well. Maybe we will hear more this week. HZN cannot possibly afford its current interest in Bosavi. A farm in deal could put a bit more oomph in HZN ‘s share price as would undoubtedly, good news from Tunisia. As I am still suffering my Huinga 1B hangover I have no current interest in HZN. Good luck to those that do.

Bilip 1

Got back to Santos this week to ask the basic question “was Bilip 1 a commercial discovery or not?”. Not unexpectedly I didn’t get a direct answer but by all accounts it has the potential to be a good producer for STO and CUE. My contact reminded me that Bilip1 had flow tested 2000 bopd from only three metres of a thirty metres oil column and through a restricted choke. The reservoir was apparently of excellent quality with no sand entering the well bore. In other words if producing at full throttle from the entire column, Bilip1 could flow like a stuck pig. Well that’s the theory any way. Apparently Bilip 1 is what they call a short life well, one that flows prolifically but only for a year or two. STO is doing some modelling and mapping to further appraise the well. May even be another well. There are suggestions it could be on production through a 10 km pipeline to the SE Gobe production facilities by the end of the year. Anyway that’s what they tell me. Good news for CUE if it all come s to pass.

Carnarvon

According to the company things are progressing “reasonably well” at Wichian Buri and a full and detailed activity report would be out before the end of the month. I queried a suggestion in the Oil and Gas Bulletin a few issues ago that the break even point for CVN was 100 bopd and learned that the break even point for the joint venture was more like 600 bopd. CVN has 40% of the jv. Report from CVN will be anxiously awaited.

Quarterly Reports

Two reports out this week one from Cooper Energy and the other from Amadeus. Lots more to come in the next fortnight.

Coopers reported that it would drill four to five wells this year with a high priority on drilling in PEL 92 where the Sellicks discovery was made. Sellicks should now be producing at a rate of 800 bopd a flow rate constrained it seems only by the number of trucks being used to transport the oil to Moomba. COE and BPT are building their own offloading facilities at Tantanna which should result in significant freight cost savings. Unlike AMU, COE issued a cash flow report which showed that the company still had $5.5 million in cash at the end of the quarter. There was nothing in the Cooper report likely to greatly excite the market but it did show a company in a healthy financial position, a producer after just one year as a listed company and an active drilling program going forward. COE shares have not yet recovered from the disappointment of Karbine 1 but I would expect them to slowly strengthen from the 12.5 cent level they closed at on Friday. The cash alone represents 10 cents a listed share.

I covered AMU more fully a post or so ago and said then that they would be better off concentrating on their oil exploration and production activities in the USA and not getting into bio diesel and hi tech activities which the market doesn’t understand. The shares are languishing around the 8.5 cents level with little buyer interest. AMU did not put out a detailed cash flow report so there is no indication of how much money it has left in the bank. It appears to me like Amadeus needs a change of direction and/or leadership. I notice that one of the directors resigned during the quarter so something may be happening in the board room. AMU’s US assets are valued significantly higher than the current share price so a contrarian might think of buying in at these levels in the hope that changes are on their way that will add value to the stock. Not for me though.

As usual the foregoing for information and discussion only. Do your own research. Happy to answer any queries by email at [email protected]

Disclosure: I hold BPTOA, BUY, CUE, CVN, COE, KRZ, FAR, PPP, PSA, GBG and WON.